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IIBF Forex for Individuals practice questions

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Question 1Foreign Exchange Fundamentals and FEMA Framework

Under FEMA, the rupee is treated as which of the following?

  1. Convertible on the capital account only for resident individuals
  2. Non-convertible for all transactions including trade
  3. Fully convertible on both the current and capital accounts
  4. Fully convertible on the current account but not on the capital account Correct answer.

Explanation

India maintains partial convertibility: current account transactions are largely free, while capital account transactions need permissions or are restricted by the FEM (CAT) Rules. This distinction is the backbone of the FEMA framework.

Question 2Foreign Exchange Fundamentals and FEMA Framework

Which legislation replaced the Foreign Exchange Regulation Act, 1973?

  1. Foreign Exchange Management Act, 1999 Correct answer.
  2. Banking Regulation Act, 1949
  3. Payment and Settlement Systems Act, 2007
  4. Prevention of Money Laundering Act, 2002

Explanation

FEMA, 1999 came into force on 1 June 2000 and replaced FERA, 1973, shifting the emphasis from regulation and criminal penalties to management and civil penalties. It is the governing statute for most retail forex transactions today.

Question 3Foreign Exchange Fundamentals and FEMA Framework

For a resident individual remitting foreign exchange under the Liberalised Remittance Scheme, what is the standard annual limit?

  1. USD 75,000 per financial year
  2. USD 1,000,000 per financial year
  3. USD 250,000 per financial year Correct answer.
  4. USD 10,000 per financial year

Explanation

The LRS permits resident individuals to remit up to USD 250,000 per financial year for permitted current and capital account transactions. The limit is per person, not per transaction.

Question 4Foreign Exchange Fundamentals and FEMA Framework

Which document is the standard declaration a resident individual must furnish to an authorised dealer when remitting under LRS?

  1. Form ODI
  2. Form FC-GPR
  3. Form A2 with the required declaration Correct answer.
  4. Form 15CA

Explanation

Form A2 is the application-cum-declaration used for foreign exchange remittances, including LRS, and captures the purpose and applicant details. It is the routine AD-facing document for retail remittances.

Question 5Foreign Exchange Fundamentals and FEMA Framework

A resident individual wants to gift funds abroad for a permitted purpose. Which route is normally available for this remittance?

  1. Only through the RBI's prior approval in every case
  2. Only if the recipient holds an Indian passport
  3. Unlimited remittance with no purpose check
  4. LRS, within the annual limit and subject to purpose restrictions Correct answer.

Explanation

Permitted current account purposes such as gifts and donations can be remitted under LRS within the USD 250,000 annual cap, subject to the prohibited list. Unlimited remittance is not available to resident individuals.

Question 6Foreign Exchange Fundamentals and FEMA Framework

The FEM (Current Account Transactions) Rules restrict certain payments. Which of the following is a prohibited current account transaction?

  1. Payment of a foreign business travel expense
  2. Remittance for lottery tickets Correct answer.
  3. Payment of tuition fees abroad for a dependent child
  4. Remittance for medical treatment abroad

Explanation

The current account rules list prohibited items, including remittances for lottery tickets and certain gambling-related payments. Education, medical treatment, and business travel are permitted categories within limits.

Question 7Foreign Exchange Fundamentals and FEMA Framework

Which of the following is a capital account transaction under FEMA?

  1. Payment of a foreign consultant's invoice
  2. Payment of an overseas hotel bill
  3. Remittance of tuition fees
  4. Purchase of immovable property overseas by a resident individual Correct answer.

Explanation

Capital account transactions alter the assets or liabilities of residents abroad and include overseas property purchases, investments, and loans. Hotel bills, tuition, and consultant fees are current account payments.

Question 8Foreign Exchange Fundamentals and FEMA Framework

Which entity is primarily responsible for verifying that a retail forex remittance request complies with FEMA before execution?

  1. The Securities and Exchange Board of India
  2. The authorised dealer bank handling the transaction Correct answer.
  3. The Ministry of External Affairs
  4. The overseas beneficiary bank

Explanation

Authorised dealers are the frontline interface and must verify purpose, documentation, and limits before executing a remittance. The RBI supervises them but does not approve routine retail transactions.

Question 9Foreign Exchange Fundamentals and FEMA Framework

A resident individual holds a foreign currency current account abroad while working temporarily overseas. Which statement best describes the FEMA treatment of such an account?

  1. It may be maintained under the permitted resident facilities subject to conditions on return Correct answer.
  2. It is always prohibited for resident individuals
  3. It is permitted only for non-residents
  4. It requires RBI approval in every instance

Explanation

FEMA and the RBI's facilities allow resident individuals to maintain foreign currency accounts abroad in specified circumstances, such as temporary foreign employment, with conditions on repatriation when they return. A blanket prohibition or universal prior approval is not accurate.

Question 10Foreign Exchange Fundamentals and FEMA Framework

A resident individual wants to open an overseas bank account for a permitted purpose. Which route is generally used?

  1. The LRS facility for opening a foreign currency account abroad Correct answer.
  2. The FC-GPR reporting route
  3. The ODI route applicable to Indian companies
  4. The ECB approval route

Explanation

Resident individuals can open foreign currency accounts abroad under LRS for permitted purposes within the annual limit. ODI, FC-GPR, and ECB are corporate or investment routes not designed for retail account opening.

Question 11Foreign Exchange Fundamentals and FEMA Framework

A customer remits funds under LRS and later wants to know how the annual limit is tracked. What is the correct basis for the limit?

  1. The calendar year, counted per beneficiary
  2. Each authorised dealer separately, with no aggregation
  3. Aggregate remittances by the individual across all authorised dealers in the financial year Correct answer.
  4. Each individual transaction separately

Explanation

The LRS cap applies to the total remitted by an individual in a financial year across all ADs, and banks rely on declarations and systems to track it. It is not reset per transaction, per bank, or per beneficiary.

Question 12Foreign Exchange Fundamentals and FEMA Framework

Which of the following best explains why purpose codes are recorded on forex remittance applications?

  1. To set the income-tax slab for the remitter
  2. To classify the transaction for statistical reporting and to confirm it is a permitted purpose Correct answer.
  3. To determine the exchange rate applied to the transaction
  4. To fix the beneficiary bank's service charges

Explanation

Purpose codes allow the RBI to compile balance of payments statistics and let ADs confirm the remittance falls within permitted purposes. They do not set exchange rates, bank charges, or tax slabs.

Question 13Foreign Exchange Fundamentals and FEMA Framework

A resident individual receives a gift in foreign currency from a non-resident relative. Under FEMA, how is the receipt generally treated?

  1. It is a permitted receipt for a resident individual, subject to the applicable rules Correct answer.
  2. It is permitted only if the amount is below USD 500
  3. It is prohibited and must be returned
  4. It requires prior RBI approval in every case

Explanation

Receipts by resident individuals by way of gift from non-residents are generally permitted under FEMA, with reporting or KYC conditions where applicable. There is no blanket prohibition or universal prior approval requirement.

Question 14Foreign Exchange Fundamentals and FEMA Framework

An individual is travelling abroad and needs foreign exchange for expenses. Which facility is designed for this purpose?

  1. The ECB route
  2. The LRS capital account route only
  3. The ODI route
  4. Exchange drawn under the travel scheme, within the prescribed entitlement Correct answer.

Explanation

Travel-related foreign exchange is released by ADs under the travel scheme within prescribed entitlements, with LRS applying for larger or other permitted remittances. ODI and ECB are corporate routes.

Question 15Foreign Exchange Fundamentals and FEMA Framework

What is the primary consequence under FEMA of a contravention, such as remitting beyond the LRS limit?

  1. Criminal imprisonment as the automatic first remedy
  2. A civil penalty, with confiscation and compounding possibilities Correct answer.
  3. Automatic cancellation of the passport
  4. Permanent debarment from all banking services

Explanation

FEMA is a civil statute: contraventions attract monetary penalties and possible confiscation, and the RBI's compounding mechanism allows settlement. Criminal imprisonment is not the automatic first remedy under FEMA.

Question 16Foreign Exchange Fundamentals and FEMA Framework

Which of the following transactions would fall outside the LRS and require a different regulatory route?

  1. A resident individual's remittance for family maintenance abroad
  2. Overseas direct investment by an Indian company in a foreign subsidiary Correct answer.
  3. A resident individual's remittance for medical treatment abroad
  4. A resident individual's remittance for overseas education

Explanation

Overseas direct investment by an Indian company is governed by the ODI framework, not the retail LRS. Education, family maintenance, and medical treatment are permitted LRS purposes for individuals.

Question 17Foreign Exchange Fundamentals and FEMA Framework

A resident individual wants to invest in foreign securities. Which statement is most accurate?

  1. It requires SEBI approval for each purchase
  2. It is allowed only through the ODI route
  3. Foreign securities investment by residents is completely banned
  4. Investment is permitted under LRS within the annual limit, subject to the prescribed conditions Correct answer.

Explanation

Resident individuals may remit under LRS to invest in permitted foreign securities, including through specified overseas investment facilities, within the annual cap. A total ban, ODI-only route, or per-purchase SEBI approval is incorrect.

Question 18Foreign Exchange Fundamentals and FEMA Framework

Which statement correctly distinguishes FERA from FEMA?

  1. FERA and FEMA are identical in scope and penalties
  2. FERA was civil and FEMA is criminal
  3. FERA presumed guilt and treated violations as criminal, whereas FEMA presumes innocence and uses civil penalties Correct answer.
  4. FERA applied only to non-residents and FEMA only to residents

Explanation

FERA was a restrictive, criminal-law regime that placed the burden of proof on the accused, while FEMA is a civil regime that presumes innocence and imposes monetary penalties. This philosophical shift underpins modern retail forex facilitation.

Question 19Foreign Exchange Fundamentals and FEMA Framework

A customer wants to remit funds for a purpose listed as prohibited in the current account rules. What should the authorised dealer do?

  1. Process it under LRS after collecting a declaration
  2. Decline the remittance because prohibited purposes cannot be financed with foreign exchange Correct answer.
  3. Process it if the amount is below the LRS limit
  4. Refer it to the beneficiary bank for approval

Explanation

Prohibited current account purposes cannot be financed with foreign exchange regardless of amount, and the AD must decline. The LRS limit does not override the prohibited list.

Question 20Foreign Exchange Fundamentals and FEMA Framework

Which of the following is the best example of a current account transaction?

  1. Opening a foreign currency fixed deposit abroad
  2. Acquisition of immovable property abroad
  3. Payment of interest on a foreign currency loan Correct answer.
  4. Purchase of shares in a foreign company

Explanation

Interest payments on loans are income or service flows and belong to the current account. Buying shares, opening deposits, and acquiring property create or alter assets abroad and are capital account transactions.

Question 21Foreign Exchange Fundamentals and FEMA Framework

A resident individual wants to remit funds to a relative abroad for family maintenance. What is the correct regulatory characterisation?

  1. An ODI requiring Form ODI
  2. A capital account transaction requiring RBI approval
  3. A permitted current account remittance, subject to LRS limits and documentation Correct answer.
  4. A prohibited transaction in all cases

Explanation

Family maintenance abroad is a permitted current account purpose and can be remitted under LRS within the annual limit, with the usual documentation. It is neither prohibited nor a capital account or ODI transaction.

Question 22Foreign Exchange Fundamentals and FEMA Framework

Which of the following best explains the role of the RBI in the retail forex framework?

  1. It acts as the beneficiary bank for overseas remittances
  2. It issues the rules and master directions that authorised dealers apply to individual transactions Correct answer.
  3. It sets the exchange rate for every retail transaction
  4. It personally approves each retail remittance before execution

Explanation

The RBI frames the regulatory framework through FEMA rules and master directions, while ADs apply them to individual cases under delegated authority. The RBI does not approve each remittance, fix retail rates, or act as a beneficiary bank.

Question 23Foreign Exchange Fundamentals and FEMA Framework

A resident individual has already remitted USD 200,000 under LRS this financial year and now wants to remit USD 60,000 for a permitted purpose. What is the correct outcome?

  1. It can be executed because the purpose is permitted
  2. It can be executed if split across two banks
  3. The remittance cannot be fully executed under LRS because the annual cap would be exceeded Correct answer.
  4. It can be executed because each transaction has its own limit

Explanation

The LRS cap is an aggregate annual limit per individual, so USD 200,000 plus USD 60,000 exceeds USD 250,000 and the excess cannot be remitted under LRS. Splitting across banks or relying on purpose permissibility does not extend the cap.

Question 24Foreign Exchange Fundamentals and FEMA Framework

Which statement about the compounding of FEMA contraventions is most accurate?

  1. Compounding automatically erases the transaction from all records
  2. Compounding is available only to non-resident entities
  3. Compounding allows a contravention to be settled by paying a sum, typically after an application to the RBI Correct answer.
  4. Compounding converts the matter into a criminal prosecution

Explanation

The RBI's compounding process lets a person apply to settle a FEMA contravention by paying a determined amount, avoiding prolonged adjudication. It does not erase records, convert the matter to criminal prosecution, or exclude residents.

Question 25Foreign Exchange Fundamentals and FEMA Framework

A resident individual is offered an overseas property purchase funded by remittances. Which analysis is correct under FEMA?

  1. It is a current account payment because it is a one-time expense
  2. It is permitted without any limit because property is not a financial asset
  3. It is always prohibited for resident individuals
  4. Acquiring immovable property abroad is a capital account transaction, permitted only within the prescribed framework and limits Correct answer.

Explanation

Immovable property abroad is a capital asset, so its acquisition is a capital account transaction governed by the prescribed framework and LRS limits. It is not an ordinary current account expense, an absolute prohibition, or an unlimited facility.

Question 26Foreign Exchange Fundamentals and FEMA Framework

For the purpose of the Liberalised Remittance Scheme, what does the annual ceiling of USD 250,000 apply to?

  1. Each individual resident remitter, per financial year Correct answer.
  2. Each family unit, per calendar year
  3. Each remittance transaction, with no annual cap
  4. Each authorised dealer branch, per financial year

Explanation

The LRS ceiling is fixed per resident individual for a financial year and aggregates all permitted capital and current account remittances made under the scheme. It is not a per-transaction cap and is not applied to a family or to a bank branch.

Question 27Foreign Exchange Fundamentals and FEMA Framework

Which form is normally completed by an individual remitting foreign exchange under the Liberalised Remittance Scheme?

  1. Form ODI
  2. Form FC-GPR
  3. Form 15CA
  4. Form A2 Correct answer.

Explanation

Form A2 is the application-cum-declaration used for foreign exchange remittances, including LRS transfers, and records the purpose and applicant details. The other forms serve tax withholding, foreign investment reporting, and overseas investment routes respectively.

Question 28Foreign Exchange Fundamentals and FEMA Framework

Which of the following is a facility that lets resident individuals hold foreign exchange in a domestic account without converting it into rupees?

  1. Exchange Earners' Foreign Currency account Correct answer.
  2. Resident foreign currency fixed deposit
  3. Non-resident ordinary rupee account
  4. Foreign currency non-resident bank deposit

Explanation

The Exchange Earners' Foreign Currency account allows eligible residents such as exporters to retain a portion of foreign exchange earnings in foreign currency. The other accounts are non-resident or deposit products with different eligibility rules.

Question 29Foreign Exchange Fundamentals and FEMA Framework

Which document is the primary source of the rules governing drawal of foreign exchange for current account transactions by individuals?

  1. Foreign Exchange Management (Current Account Transactions) Rules, 2000 Correct answer.
  2. Foreign Exchange Management (Deposit) Regulations
  3. Foreign Exchange Management (Export of Goods and Services) Regulations
  4. Foreign Exchange Management (Capital Account Transactions) Regulations

Explanation

The Current Account Transactions Rules, 2000 set out prohibited, government-approval, and RBI-approval categories for current account drawals. The capital account, deposit, and export regulations govern different transaction classes.

Question 30Foreign Exchange Fundamentals and FEMA Framework

An individual resident wants to remit a small amount to a relative abroad for a permitted purpose and the bank asks for a declaration. What is the key regulatory basis for the bank's request?

  1. The bank must report each remittance to the Ministry of Home Affairs
  2. The bank must convert the amount to rupees before remitting
  3. The bank must obtain prior approval from the RBI for every retail remittance
  4. The bank must satisfy itself that the remittance is for a permitted purpose under FEMA Correct answer.

Explanation

Authorised dealers act as the first line of compliance and must verify that a remittance falls within a permitted purpose and limit before executing it. Routine retail remittances do not require prior RBI approval, and reporting goes to the RBI, not the Home Ministry.

Question 31Foreign Exchange Fundamentals and FEMA Framework

Which of the following best describes the role of the Foreign Exchange Dealers' Association of India in the retail forex framework?

  1. It sets the annual LRS ceiling for each financial year
  2. It issues self-regulatory guidance and standardised documentation for authorised dealers Correct answer.
  3. It adjudicates FEMA contraventions and imposes penalties
  4. It grants FEMA licences to individual remitters

Explanation

FEDAI is a self-regulatory body that frames market conventions, standard documentation, and guidance for authorised dealers. Licensing, ceiling-setting, and adjudication are functions of the RBI.

Question 32Foreign Exchange Fundamentals and FEMA Framework

A resident individual receives a foreign currency dividend from overseas shares held under a permitted route. How is this receipt classified under FEMA?

  1. As a prohibited transaction
  2. As a transaction requiring prior government approval
  3. As a current account transaction Correct answer.
  4. As a capital account transaction

Explanation

Dividend and other investment income received on permitted overseas holdings is a current account receipt, since it arises from income rather than from the creation or transfer of a capital asset. It is not prohibited and does not need prior government approval.

Question 33Foreign Exchange Fundamentals and FEMA Framework

Which of the following best explains why the RBI publishes the LRS ceiling rather than leaving it to individual banks?

  1. It replaces the need for purpose codes on remittance forms
  2. It applies only to remittances made for investment purposes
  3. It provides a uniform national limit that banks apply consistently to all resident remitters Correct answer.
  4. It allows each bank to negotiate a higher limit with its customers

Explanation

A single notified ceiling ensures that every authorised dealer applies the same aggregate limit to resident individuals, preventing inconsistent treatment across banks. Banks cannot negotiate higher limits, and purpose codes remain mandatory.

Question 34Foreign Exchange Fundamentals and FEMA Framework

An individual wants to remit funds under LRS to a person abroad as a gift. Which condition must be satisfied?

  1. The remittance must fall within the annual LRS ceiling and be for a permitted purpose Correct answer.
  2. The recipient must be a close relative as defined in the Companies Act
  3. The remittance must be supported by an export invoice
  4. The remittance must be routed through a non-resident account

Explanation

Gifts are a permitted LRS purpose, subject to the aggregate annual ceiling and purpose verification by the bank. The Companies Act relative definition is not an LRS condition, and export documentation applies to trade remittances.

Question 35Foreign Exchange Fundamentals and FEMA Framework

A resident individual has exhausted the LRS limit for the financial year and now needs to remit funds for urgent medical treatment abroad. What is the correct approach?

  1. The bank may consider the request under the specific medical remittance route available outside the LRS ceiling Correct answer.
  2. The individual must obtain a fresh PAN before any remittance is allowed
  3. The individual must wait until the next financial year to remit any amount
  4. The individual must reclassify the remittance as a gift to fit within LRS

Explanation

Certain current account purposes, including medical treatment abroad, have separate treatment that is not constrained by the LRS ceiling, subject to the bank's verification of documents. Waiting for the next year or mislabelling the purpose is not acceptable.

Question 36Foreign Exchange Fundamentals and FEMA Framework

A resident individual wants to remit money for maintenance of a dependent relative abroad. What does the bank primarily rely on to determine the applicable limit?

  1. The value of the relative's overseas assets
  2. The notified LRS ceiling together with the declared purpose of maintenance Correct answer.
  3. The exchange rate prevailing on the date of the relative's birth
  4. The credit rating of the remitting bank

Explanation

The bank applies the notified LRS ceiling and checks that the declared purpose is a permitted one, such as family maintenance. The relative's assets, the bank's rating, and irrelevant dates play no role in determining the limit.

Question 37Foreign Exchange Fundamentals and FEMA Framework

A customer presents a remittance request whose stated purpose is not covered by any permitted category. What is the most appropriate action for the authorised dealer?

  1. Decline to execute the remittance until a permitted basis is established Correct answer.
  2. Execute the remittance after converting it to a rupee transfer
  3. Execute the remittance and report it later to the RBI
  4. Execute the remittance and record the purpose as a gift

Explanation

An authorised dealer must not process a remittance that lacks a permitted purpose, since doing so would facilitate a contravention. Executing first and reporting later, or mislabelling the purpose, does not cure the defect.

Question 38Foreign Exchange Fundamentals and FEMA Framework

Which of the following statements about the rupee's convertibility is most accurate?

  1. Capital account convertibility is complete, while current account convertibility is restricted
  2. Neither current nor capital account convertibility exists for individuals
  3. Both current and capital account convertibility are complete
  4. Current account convertibility is largely in place, while capital account convertibility is partial and permission-based Correct answer.

Explanation

India accepted current account convertibility in the 1990s, but capital account transactions remain subject to permitted routes and limits. The other options invert or exaggerate the position.

Question 39Foreign Exchange Fundamentals and FEMA Framework

A resident individual wants to open an account with a bank abroad for a permitted purpose. Which route is normally used?

  1. An RFC fixed deposit opened with an Indian bank
  2. The LRS route, with the bank verifying the declared purpose Correct answer.
  3. A non-resident ordinary account opened in India
  4. An EEFC account maintained with an Indian bank

Explanation

Opening an overseas bank account for a permitted purpose is generally funded and declared under LRS, with the authorised dealer verifying the purpose. NRO, RFC, and EEFC accounts are all maintained in India.

Question 40Foreign Exchange Fundamentals and FEMA Framework

Which of the following best explains the purpose of the purpose code field on a foreign exchange remittance application?

  1. It replaces the need for the remitter's declaration
  2. It classifies the transaction so that the bank and RBI can monitor compliance with permitted purposes and limits Correct answer.
  3. It determines the exchange rate applied to the transaction
  4. It identifies the beneficiary's tax residency status

Explanation

Purpose codes allow the transaction to be classified for regulatory monitoring, ensuring that remittances fall within permitted categories and ceilings. They do not set exchange rates, determine tax residency, or substitute for the remitter's declaration.

Question 41Foreign Exchange Fundamentals and FEMA Framework

An individual remits funds under LRS and later asks how the annual limit is tracked. What is the correct basis?

  1. The balance in the individual's savings account
  2. The aggregate of all LRS remittances by that individual during the financial year Correct answer.
  3. The total remittances made by all customers of the bank
  4. The single largest remittance made by that individual

Explanation

The ceiling is monitored by aggregating every LRS remittance made by the individual in the financial year, across banks and purposes. It is not based on a single transaction, on the bank's total business, or on the individual's account balance.

Question 42Foreign Exchange Fundamentals and FEMA Framework

A resident individual wants to invest in foreign securities that are not covered by the LRS. Which statement is most accurate?

  1. The investment can be made freely if routed through an EEFC account
  2. A specific RBI-permitted route such as the overseas investment framework may apply, subject to its conditions Correct answer.
  3. The investment is prohibited in all circumstances
  4. The investment is automatically permitted because current account convertibility exists

Explanation

Where a foreign securities investment falls outside LRS, a dedicated RBI-permitted route with its own eligibility and limits may apply. Current account convertibility does not authorise capital account investments, and EEFC accounts do not create an exemption.

Question 43Foreign Exchange Fundamentals and FEMA Framework

Which statement correctly contrasts the legal character of FERA and FEMA?

  1. FERA treated foreign exchange violations as criminal offences, while FEMA adopts a civil penalty framework Correct answer.
  2. FEMA abolished all penalties for foreign exchange violations
  3. Both statutes provide identical criminal penalties for violations
  4. FERA adopted a civil penalty framework, while FEMA treats violations as criminal offences

Explanation

FERA was a criminal-law regime with prosecution for contraventions, whereas FEMA replaced it with a civil adjudication and penalty framework. FEMA did not abolish penalties, and the two statutes do not share an identical penalty structure.

Question 44Foreign Exchange Fundamentals and FEMA Framework

A resident individual remits USD 180,000 under LRS in a financial year and then seeks to remit a further USD 90,000 for a permitted purpose. What is the correct outcome?

  1. No further remittance is possible until the next financial year
  2. Only USD 70,000 can be remitted under LRS, since the aggregate ceiling is USD 250,000 Correct answer.
  3. The full USD 90,000 can be remitted because each transaction is tested separately
  4. The full USD 90,000 can be remitted if the bank records a different purpose code

Explanation

The LRS ceiling applies to the aggregate of remittances in the financial year, so the remaining headroom is USD 70,000. Testing each transaction separately or changing the purpose code does not create additional headroom.

Question 45Foreign Exchange Fundamentals and FEMA Framework

A resident individual wants to acquire immovable property abroad using remittances. Which analysis is correct under FEMA?

  1. Remittance for overseas immovable property is not a permitted LRS purpose Correct answer.
  2. It is permitted if the remitter uses an EEFC account
  3. It is permitted freely because property is a current account asset
  4. It is permitted only if the property is residential

Explanation

Remittances for purchase of immovable property abroad are not among the permitted LRS purposes, so an authorised dealer cannot process them under the scheme. Property is a capital asset, and neither its residential character nor the use of an EEFC account changes the position.

Question 46Foreign Exchange Fundamentals and FEMA Framework

Which of the following best describes the RBI's role in the retail forex framework?

  1. It directly executes every retail remittance on behalf of individuals
  2. It notifies limits, permitted purposes, and reporting requirements that authorised dealers must follow Correct answer.
  3. It acts as the beneficiary bank for overseas remittances
  4. It sets the exchange rate at which every retail transaction must be booked

Explanation

The RBI functions as the regulator, issuing notifications on limits, purposes, and reporting, while authorised dealers execute transactions. It does not process individual remittances, fix transaction-level exchange rates, or act as a beneficiary bank.

Question 47Foreign Exchange Fundamentals and FEMA Framework

A resident individual wants to remit funds to a relative abroad for family maintenance but has already used part of the LRS ceiling. Which combination of checks must the authorised dealer apply?

  1. Verify the permitted purpose and confirm that the aggregate LRS utilisation remains within the ceiling Correct answer.
  2. Verify only the exchange rate and ignore the ceiling
  3. Verify only the remitter's tax status and ignore the purpose
  4. Verify only the beneficiary's identity and ignore the purpose

Explanation

The dealer must confirm both that the purpose is permitted and that the aggregate remittances, including the new one, stay within the LRS ceiling. Checking only beneficiary identity, exchange rate, or tax status would leave the core FEMA conditions unverified.

Question 48Foreign Exchange Fundamentals and FEMA Framework

A remitter wants to split a large permitted remittance into several smaller transfers to different banks to stay under the LRS ceiling. How should this be assessed?

  1. It is a structuring attempt that contravenes FEMA because the ceiling applies to the individual's aggregate remittances Correct answer.
  2. It is permissible if the transfers are made on different dates
  3. It is permissible if each transfer uses a different purpose code
  4. It is permissible because each bank assesses only the transactions it handles

Explanation

The LRS ceiling attaches to the individual and applies to aggregate remittances, so splitting transfers across banks to avoid it is structuring and a contravention. Neither separate purpose codes nor different dates legitimise the arrangement.

Question 49Foreign Exchange Fundamentals and FEMA Framework

A resident individual receives foreign exchange from abroad and the bank is unsure whether the receipt is permitted. What is the correct compliance approach?

  1. The bank should not credit the funds until the permissibility of the receipt is established Correct answer.
  2. The bank should credit the funds and report the matter only at year end
  3. The bank should credit the funds and convert them to rupees immediately
  4. The bank should credit the funds and leave verification to the remitter

Explanation

Authorised dealers must ensure that receipts are permissible before giving credit, since crediting first and verifying later could facilitate a contravention. Immediate conversion or year-end reporting does not substitute for prior verification.

Question 50Foreign Exchange Fundamentals and FEMA Framework

A resident individual in India receives a payment in Indian rupees from a person resident outside India for services rendered, and the bank questions whether the transaction is a permissible receipt under FEMA. Which statement best describes the regulatory position on receipts of foreign exchange by a resident individual?

  1. Any receipt from a non-resident is prohibited unless the RBI issues a specific prior approval for that individual transaction.
  2. Receipts are generally permitted unless specifically restricted, and the bank should verify the purpose against the permitted categories before crediting. Correct answer.
  3. Receipts are allowed only where the amount is below the LRS ceiling, since the LRS governs both outbound and inbound flows.
  4. Receipts are freely allowed in every case, so the bank has no obligation to seek or record the underlying purpose.

Explanation

FEMA was drafted on a permissive footing: current account transactions are broadly free unless a specific restriction applies, so a receipt is generally allowed if its purpose falls within permitted categories. The authorised dealer must still satisfy itself about the nature of the transaction and record the purpose, because restrictions and reporting duties attach to particular purposes. The LRS ceiling is a remittance limit for outbound facilities and does not define whether an inbound receipt is permissible.